The headfakes continue as the S&P 500 grapples with the highs from 2007. Yesterday we saw a gap up at the open followed by a day of heavy selling. Today we saw a gap up at the open following by a day of buying. The S&P 500 gained 0.78% and the NASDAQ 0.53% but the smaller cap Russell 2000 was actually flat to negative for much of the day until a late day buying spree. This is very different action than we saw in November through January when the small caps were the clear leaders. Economic data was mixed so it was not the source of the move today, so it was a bit of a head scratching day. Housing data was mixed and consumer confidence plunged.
The S&P/Case Shiller home price 20-city index soared 8.1 percent compared to a year ago, kicking off the year with the biggest year-over-year increase since 2006. But new home sales declined 4.6 percent in February to a seasonally adjusted annual rate of 411,000 units, according to the Commerce Department, missing estimates.
U.S. consumer confidence tumbled in March as Americans turned more pessimistic about economic prospects in the short term, according to a private sector report. The Conference Board, an industry group, said its index of consumer attitudes fell to 59.7 from a downwardly revised 68 in February. The figure fell short of economists' expectations of 68.
We continue to see the two major indexes wrestle with the bottom of the accelerated uptrend channel from mid November. We will now add a secondary channel which connects the lows of November, December and February with a dotted line - this is the area that has held on the uptrends.
Despite the rally I would like to point out the NYSE McClellan Oscillator - usually we use this to point out oversold or overbought conditions, but right now it is telling us a different story. Even as the S&P 500 tests highs, we see this figure near 0. What does it mean? The participation rate in the market is weak - a smaller group of stocks is leading the market up. Generally this is unhealthy. Keep an eye on it. While we don't want to see 50-70 readings as that means things are overheated you'd expect 20-30 type readings for a market testing its highs.
It continues to be a rally led by safety sectors such as consumer staples and healthcare - rinse, wash, repeat. Things are starting to get parabolic in the consumer staples sector - these are slow growth type of companies so the valuations are beginning to get quite expensive relative to their earnings potential.
It is important to note that oil has finally made a move over resistance which would be a net positive if it continues.
Yesterday we noted Visa (V) with a big move, that continued today - and Mastercard (MA) joined the charge.
Netflix (NFLX) was also a star today, getting an upgrade. It doesn't show well in the chart since this is a very volatile stock, but today was a 5% move.
Analyst Andy Hargreaves of Pacific Crest Securities increased his Netflix price target to $225 from $160 and kept an "Outperform" rating. In a client note Hargreaves said that the company's database of subscriber viewing habits should help it figure out ways to invest in original content that will be the most effective and also assist it in buying third-party content that can appeal to a big audience. The analyst estimates that Netflix's U.S. streaming video business will hit 36 million subscribers by the end of 2015 and draw 17 million subscribers overseas. Hargreaves called Netflix "the clear global leader in subscription streaming video."
It is time to circle back to Facebook (FB) which was a proposed "cup and handle" pattern from about a month ago. Unfortunately, there was never any trigger in the handle, and the stock continues to struggle.